G4 – Nescafe Italy

1. G4 – Nescafe Italy M987Z226 刁鳳嬌 M987Z218 Nguyen T.HongDuy M987Z247 Nguyen Mac To My

2. Outline • Company background: Nestle Italy • The Italian consumer – key trends • Coffee consumption: Italy compared with other countries • Coffee industry in Italy: structure and evolution • Nestle in Italy • Marketing strategy options

3. Company background • Nestle SA is one of the world’s leading industrial groups, starting point with infant food product. • It also is the world’s leading producer of instant coffee and is the major buyer of raw coffee. • Launched in 1938, was adopted by all the armed forces.

4. Nestle Italy • Nestle Italy is a Milan-based company operating in over 10 different industries. • In Italy, Nestle coffee were sold under the brand Nescafe Classic, Gran Aroma and Nescafe Relax. • The main marketing were on above the line advertising and sales promotion.

5. Key trends • Increased % of Senior citizen • Increased number of Women in the workforce • Increased International mobility • Changes in the ethnic composition of the population • Rising level of education&culture among the population

6. Consumption Bar Locations • 31% of bars are located in Piemonte, Liguria, Valle D'Aosta, and Lombardia, while 25.2% are located in Trentino, Friuli, Veneto, and Emilia Romagna. • 22.5% of bars are concentrated in Toscana, Marche, Umbria and Lazia, whereas only 21.3% of bars are located in the largest region encompassing Abruzzi-Molige, Campania, Puglia, Basilicata, Calabria, and Sicilia.

7. Drink Distribution Bars average sales of 230.3 cups a day: (59.8% are sold as espressos, 13.5% are sold as cappuccinos, 12.3% are sold as correttos, 9.9% are sold as macchiattos, 4.5% are ecaffeinated coffees) Coffee Imports The most countries represented in Italy's Imports: Brazil 30.41% Indonesia 11.96%, Ivory Coast 11.69%, Zaire 7.91 %, Cameroon 7.57%, Colombia 3.89%, Paraguay 3.16%, Haiti 2.93%, Kenya 2.83%, Ethiopia 2.36%, Tanzania 2.32%, Guatemala 2.08%,

8. Coffee industry in Italy STRUCTURE AND EVOLUTION: • Coffee is the biggest commodity market in the world with: • strong competition on price and quantity among producers of raw coffee, • the different commercial and technological needs among the world manufacturers. • The fluctuation in prices frequently depend on the need for foreign exchange on the part of producing raw coffee countries.

9. Coffee industry in Italy • 3 main type of coffee-processing technology: • Roasted • Decaffeinated • Instant • 3 group of customers (3 segments): • Families • Coffee-houses • Hotels and restaurant

10. Coffee industry in Italy • In the “family” segment (with 68.6%), coffee companies focus on: • Intensive advertising to enhance the brand image • A growing orientation towards modern distribution channels • Strong promotion at points of sale • Segmentation of the market according to the quality, price and specific use of coffee. • In the “coffee-house” and “hotel and restaurant” (CHR): there is the competition between a limited number of companies (31.4%) • Although two main segments are different, companies which offer a good product in the CHR segment will probably do the same in the family one.

11. Industries structure • 1988, comprising about 750 companies with 7,200 workers. • The first 4 companies held about 42% market share of total with sales volume expected to grow at 2% per year. • With low entry barriers, large companies which buy raw coffee form the foreign countries gain advantages from economies of scale. • However, depending on foreign raw coffee also makes companies face to difficult problems and makes it even more important to realize economies of scale in purchases.

12. Marketing strategy of leading companies • Product: (coffee bean-ground coffee) • Some companies buy instant or decaffeinated coffee from other firms in order to offer a complete product line under their own brand name. • Most recent innovations in the coffee market have focused on the packaging and blends offered. They frequently used pliable bag because of the its raw material’s low cost • Outlet also is the key success factor for brand image and product’s display. • The high-quality coffee obtained through the espresso method and the image of “coffee-house” coffee, a brand can contribute to its image in the family segment; because they believe coffee made in a coffee-house is better than the coffee made at home, so consumers are often willing to by the brands found in coffee-houses.

13. Marketing strategy (cont.) • Price: • By observing the cost structure of firms operating in the market, it becomes apparent that raw materials (coffee beans)-70%, packaging-13%, ad and promotion-2%, and others-15%. Besides, they also make the price of a cup coffee down by changing the cost of components. • Price is used as a competitive tool. • Promotion and place: • In family segment, market leaders benefit from economies of scale not lonely in distribution, but also in communication to maintain their leadership. • Forms of promotion: billboards, brochures, displays which show some originality in presenting the product. • Discount program: “buy 2 get 1 free” or “2 vacuum-packed bags of ground coffee sold as 1”

14. Main Competitors Lavazza SpA of Turin Segafredo-Zanetti SpA of Bologna Crippa & Berger SpA of Milan Procter & Gamble Italia Illy Caffe` of Trieste Consorzio Sao Café Café do Brasil

15. Nestcafe in Italy • Instant coffee was introduced into Italy in 1962 • Nestcafe different formulation: Degree of roasting, the type of solubilization, the raw materials used • Italian market: specific and deep-rooted coffee culture • Nestle objective: perceived as real coffee • Marketing decision: aiming at overcoming the inevitable suspicions of a coffee that was simultaneously “good, convenient and easy to use”  effort to affirm the goodness and quality of Nestcafe with Italian coffees

16. First advertising messages FAILED • Aimed at an emotional response, underscored the goodness of the coffee: “Nestcafe, the best of them all” • But this message was “miss something” and not substitute for “real” coffee  Nestcafe was seen as a “back up” product for emergency cases and best suited to singles or older people • Comparing Nestcafe directly to Italian espresso did not convince consumers in terms of product quality or goodness

17. Second advertising compaign FAILED • More personal involvement on the part of consumers, presented “testimonials” by real people • “multi-subject” campaign showed “typical” people in the workforce • Nescafe was coffee suited to and made for anyone who “wants something more out of life” and “gives something more to it”, “you deserve a better coffee, Nescafe” • Nescafe was still an unattractive to those who wanted “gratification” and a “recharge” from their coffee

18. “The train” advertising • The advertising presented an exotic train journey aimed at stimulating emotinal involvement, while the “rational” product benefits were communicated through suggestive images of locations where coffee is grown • The adverts underscored the value of a good coffee, suggesting the positive associations with Nescafe’s origins without comparing it directly to typical Italian coffee • Nescafe gained in perceived prestige and reliability

19. Sales after years

20. Nescafe first success • Nescafe was preferred by older people( 80% of 55 years old and above) because of its less “aggresive” image and for its ease of preparation during moments of relaxation • In family market, Nescafe was considered “emergency provisions” by many Italian families, especially when on holiday • In a splendid niche with higher price against normal coffee

21. Figures • Wholesalers = 85% retail price • Var. manufacturing costs = 37.5% retail price • Gross operating profit = 47.5% • Sales & distribution costs = 15.3% • Operating profit = 32.3%

22. Netle’ Italy management desire • Wide distribution of the brand • Increasing sales • Increasing the quality of coffee to support this desire

23. Motivational study about Nescafe • 2/3 prefer during meals or in the afternoon; 1/3 remaining use as a “milk modifier” in the morning • The different brands of Nescafe’ are easily distinguished • 43% of consumers consider it “lighter” than Espresso or “mocha” coffee, 20% “as much as”, 37% “don’t know” • Nescafe brand awareness was high(83%) • Total market share was 1.4% • Market penetration was 14% • Sales was concentrated in some big cities and in the North of Italy

24. Marketing stratety options

25. Optimal option Positioning for younger and more “cosmopolitan” as “the international coffee beverage” (+) Main target for next 5 years (+) Younger people pprecitate Nescafe  the chance to emphasize as milk modifier and “new, less-caffeine-alternative coffee” (+) The major Nestle’ food products should become standardized by the 1990s, at least in European market. (+) Significant benefits for Nestle’ (+) Growing “transnational consumers” segment that travelling, living all over the world, achieving “universal” consumption habits

26. Question 1: Which of the four options outlines in the case would you adopt and why? Is there yet another, even better alternative? • It’s Option 3. Because… The younger people’s appreciation of Nescafe was an opportunity to emphasize the product both as a milk modifier and as a ‘new less-caffeine-alternative coffee’

27. Q2: What would be the target segments, proposed positioning and promotion, pricing and distribution strategies  • For overview of marketing strategies of leading companies, the “family” segment is the target segment with nearly 70%. • They create a good image in CHR to contribute its image in the “family” segment. Besides, they develop their product with different size of packages (200-250-400-500 gram bags) for family to easily choose the suitable one. • The promotion programs are also frequently made for retail customers.

28. Q3: What would be the advertising copy strategy and the budget to invest on the “relaunch” of Nescafe? • Copy strategy is the thinking behind the creation of your advertising and it has 3 key elements: consumer benefit, reason to believe and brand character. • Nescafe should keep the train advertising success with the perception of prestige and reliability. Furthermore it should express the benefit of consumer when using Nescafe aiming at the new positioning strategy of younger people. • The budget to invest is base on: (1) percentage of sales or profits ; (2)  Unit of sales; (3)  Objective and task

29. Thank you for listening! Q & A